Apartment Investment and Management Company — Q3 2011 Form 10-Q
Reporting period: Three and nine months ended September 30, 2011; unaudited. Comparisons are with the corresponding 2010 periods unless stated otherwise. Dollar amounts are in millions unless noted.
Business context
Aimco is a self-managed REIT focused primarily on conventional apartment properties, alongside affordable housing and property and asset-management services. At quarter-end, it had equity interests in 205 conventional properties with 64,781 units and 201 affordable properties with 24,040 units. The conventional and affordable portfolios generated 87% and 13% of proportionate property NOI, respectively, for the first nine months.
Financial results and key metrics
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $281.4 | $273.2 | $834.5 | $812.3 |
| Operating income | $44.1 | $35.6 | $132.3 | $92.2 |
| Net income (loss) | $4.7 | ($28.5) | ($49.6) | ($55.4) |
| Net loss attributable to Aimco common stockholders | ($14.8) | ($28.5) | ($79.8) | ($86.9) |
| Diluted FFO attributable to common stockholders | $43.6 | $48.9 | $120.3 | $125.2 |
| Diluted pro forma FFO attributable to common stockholders | $49.7 | $46.7 | $127.7 | $131.4 |
Q3 conventional same-store occupancy averaged 95.2%; rent averaged $1,112 per month. Total same-store revenue and expense rose 3.5% and 3.1%, respectively, and NOI increased 3.8%; same-store operating margin was 61.9%, versus 61.8%. For the first nine months, total same-store NOI increased 5.8% and margin was 62.5%, up from 60.7%.
Q3 continuing-operations loss was $26.3 million, compared with $47.0 million a year earlier. Discontinued operations contributed $31.0 million, including $37.5 million of real estate disposition gains. For the first nine months, discontinued-operations income was $51.0 million, down from $65.9 million, primarily reflecting lower disposition gains and property operating income. These results make reported net income/loss sensitive to asset sales and should be distinguished from ongoing property performance.
Operating cash flow for the first nine months was $176.4 million, down from $190.2 million. Investing activities used $18.2 million, versus $41.5 million provided in 2010; financing activities used $193.6 million. Capital expenditures were $118.4 million. Cash and cash equivalents were $75.8 million at September 30, down $35.5 million from year-end; restricted cash was $209.5 million.
At September 30, total indebtedness was $5.260 billion: $5.234 billion of non-recourse property debt and $26.2 million drawn on the revolver. Property debt was approximately 94% fixed-rate, with an 8.2-year weighted-average maturity. The $300 million revolving facility had $247.8 million available after borrowings and letters of credit. Reported covenant ratios were 1.60:1 for EBITDA to debt service and 1.36:1 for earnings to fixed charges, compared with then-current minimums of 1.40:1 and 1.20:1.
Material changes and significant transactions
- Revenue rose 3.0% in Q3 and 2.7% for the nine-month period. Operating income improved in both comparisons, supported by higher property NOI and lower depreciation and amortization.
- Nine-month interest expense increased $17.9 million, largely due to $20.7 million of prepayment penalties and a $2.3 million deferred-loan-cost write-off from refinancing. Aimco refinanced $625.7 million of loans with $673.8 million of new ten-year, fixed-rate loans; the new loans had a stated weighted-average rate of 5.49%.
- Aimco purchased first-loss and mezzanine positions in the related securitization for $51.5 million, with $100.9 million face value. Management said this investment effectively reduced net property-loan exposure by $100.9 million; fair value at quarter-end was $49.0 million, below amortized cost of $52.5 million.
- During the first nine months, Aimco sold or disposed of 39 consolidated properties for $293.2 million gross proceeds and recorded approximately $64.7 million of net disposition gains. No properties were classified as held for sale at September 30, 2011; 39 properties were so classified at year-end 2010.
- Aimco issued $72.0 million net from common-stock ATM sales and $19.0 million net from Class Z preferred-stock offerings. It also redeemed 25% of outstanding Class V preferred stock for $21.6 million plus accrued dividends. Common dividends declared were $0.12 per share for Q3 and $0.36 per share for the first nine months.
- Management reported improved leasing: Q3 new conventional lease rates were 6.1% above expiring rents and renewals were 5.6% above expiring rents. It also resigned from management or asset-management roles for approximately 100 properties with about 11,400 units as part of a business simplification effort.
Outlook, risks and contingencies
The filing provides no specific earnings or FFO guidance. Management said it expected to remain in compliance with credit-facility covenants over the next 12 months, while noting covenant minimums increase in the quarter ending March 31, 2012. It planned to continue refinancing 2012–2015 property maturities, pursue selective sales and reinvestment, and fund future acquisitions, redevelopment and capital work through operating cash flow, property-sale proceeds, and debt or equity financing. Management cautioned that results are not necessarily indicative of full-year performance.
- Management estimated that a 1 percentage-point increase in 30-day LIBOR would reduce annual net income attributable to common stockholders by about $3.0 million, or $0.02 per share, before considering possible offsets from variable-rate assets.
- Total-return swaps on $144.7 million of debt provided net cash receipts of $8.8 million in the first nine months, but rising rates could increase costs. Subsidiaries had posted $12.1 million of cash collateral against swap requirements.
- Aimco had committed to advance $3.2 million on certain West Harlem loans. If specified operating thresholds are met, counterparties may put properties to Aimco, requiring approximately $31.2 million cash and assumption of $118.0 million property debt.
- A $10.0 million liquidation preference of CRA preferred stock was classified as temporary equity because the holder may require repurchase at a 30% discount during the quarter ending June 30, 2012.
- Other disclosed exposures include $19.3 million of construction commitments, tax-credit compliance obligations, environmental liabilities, and pending settlement approvals related to a partnership dispute. Management did not expect material effects from the IRS examinations or ordinary-course legal matters described.
- The company identified financing availability and cost, debt-covenant compliance, apartment demand and competition, local economic conditions, operating costs, interest rates, regulation, environmental matters, litigation, and REIT qualification as risks. It reported no material change to the risk factors in its 2010 Form 10-K.
Important facts for investors to verify
- Reconcile GAAP losses with FFO and pro forma FFO, and assess how much reported earnings depended on disposition gains and discontinued operations.
- Track same-store rent growth, occupancy, expenses and NOI, especially whether rent increases continue to outpace operating-cost growth.
- Review refinancing economics, including prepayment costs, the effective cost of new debt, upcoming maturities and the effect of the securitization investments.
- Monitor revolver availability, covenant headroom ahead of the March 2012 threshold increases, and liquidity after dividends, capital spending and property sales.
- Assess variable-rate exposure, swap maturities and collateral requirements, and the potential West Harlem put obligation.
- Evaluate dilution and preferred-security costs from equity issuance and redemptions, alongside the sustainability of common dividends.